Weather conditions show their impact in prices of agricultural commodities. Influence of political unrest on prices is still relatively limited. Further decline of grain prices; coffee and sugar prices are comparatively high.
Limited El Niño effect
While agricultural commodities showed a significant price upswing in the first quarter of 2014, those prices came under increasing pressure in the second quarter. This downward pressure is mainly due to the ebbing effects of extreme drought in Brazil and rain and snow in North America. Meanwhile, production data on grains developed positively, and coffee did better than was expected earlier this year. As a result, coffee prices stabilised, while corn, wheat and other grains saw their prices decline. The political tensions surrounding Russia and Ukraine do not seem to be affecting the grain market for now. Nor does ABN AMRO expect El Niño to have strong effects on agricultural commodities, especially grains, now that the impact of this weather phenomenon appears to be slowing down.
Consumer could profit from lower grain prices
Based on current crop estimates, ABN AMRO expects grain prices to decline further. Dependent on the type of grain, they are likely to reach a four- or five-year low. If these price changes are passed on through the value chain, eventually the consumer will notice the price difference in bread and other grain products. ABN AMRO does point out that sugar cane crops may turn out lower due to the Indian monsoon, which is dryer than usual. Although many markets, such as cocoa, sugar, soy beans and corn, have large quantities of supply, prices might be boosted by speculation-driven demand. Coffee and sugar prices appear to be stabilising at a higher level. To a small extent, these higher prices have already fed through to consumer prices. Still, ABN AMRO does not rule out the possibility of further price increases, especially for coffee.
The Commodity Outlook (PDF 1 MB) can be downloaded here (in Dutch only).